Increased prudence from mortgage companies could lead to a drop in house prices, it has been warned.

As lenders toughen the criteria for borrowing following the global credit crunch it will become harder for people to secure home loans, mortgage firm mform.co.uk said.

Lenders are becoming increasingly more conservative about the amount of money they are prepared to advance, leading to a dramatic increase in the number of people having mortgages turned down.

Some lenders have announced a reduction in their loan to value ratios from 95% to 90%. Others have made the decision to withdraw from the 100% mortgage market altogether.

Many first-time buyers now have to find deposits worth 10% of the value of the home they want, the group said.

Any delays in purchasing homes due to first-time buyers saving to raise larger deposits could have a detrimental effect on house prices.

Mform.co.uk said the impact can already be seen as figures show the total mortgage lending during December was 21% lower than it had been a year earlier.

Francis Ghiloni, marketing and business development director at mform.co.uk, said: "The current credit crisis has made mortgage providers much more choosy when it comes to deciding who they will lend money to.

"With applicants struggling to meet lending criteria the property market may be in for a much quieter period of buying and selling compared to that seen in 2007."

The warning comes amid news that nearly one in four people with debts are struggling to meet their repayments.

A survey by accountants KPMG shows about 22% of people with a mortgage, credit card or loan said they are finding it difficult to keep up with repayments, while 35% expect the problem to get worse during the coming year.

At the same time, 22% of people with unsecured debt admitted they were increasingly relying on credit cards and overdrafts in order to survive.

Just over 11% of those questioned said they are heavily indebted, owing between £20,000 and £49,999, while 2% admitted they owe between £50,000 and £99,999.

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